Jumbo Interactive Ltd shares surge 13%, is it a buy?

Could lottery businesses like Tatts Group Limited (ASX:TTS) and Jumbo Interactive Ltd (ASX:JIN) be your ticket to riches?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors this week have now had the opportunity to hear from lottery operator Tatts Group Limited (ASX: TTS) and lottery ticket reseller Jumbo Interactive Ltd (ASX: JIN).

While the response to Tatts Group's profit result on Thursday was muted with the share price finishing the day down just two cents, investors have cheered Friday's results from Jumbo with the stock soaring around 13% to a fresh 52-week high of $1.75.

With Tatts being an essential client for Jumbo, analysis of Jumbo isn't complete without analysing Tatts. Here are some key numbers from the Tatts report which Jumbo investors should be aware of.

Tatts reported a 4.4% rise in revenue and a 3.8% increase in net profit after tax from continuing operations to $263 million. The lotteries division was the standout performer for the group with record-breaking revenue, profit and jackpots.

Tatts noted that 13.5% of all lotteries sales and 30.2% of all wagering sales were conducted online, representing growth of 33.2% and 22.5% respectively.

Other lottery specific highlights from the 2016 financial year included the launch of the first new draw lottery game in Australia in 20 years, 'Set for Life', the release of Tatts' first lotteries dedicated app and the launch of national umbrella lottery brand, 'the Lott'.

Turning to Jumbo's results and the group reported an 18% increase in revenue and a 604% surge in profit. The full year dividend has been increased to 7 cents per share (cps) from 3 cps in the prior year and the net cash balance sits at a very healthy $18.3 million.

The number of additional new accounts rose year on year by 5% (or 206,858) to a total of over 2 million accounts. Importantly, the number of "active customers" increased from 333,475 to 375,988.

Buy, Hold or Sell?

Today's results certainly make Jumbo's shares look appealing, the dependence on its relationship with Tatts remains a stumbling block for many potential investors.

Jumbo's management is attempting to deal with this situation. In today's announcement, reference was made to the high cash holdings of the group, noting that both internal and external investment opportunities were being considered.

In the near term however, investors will be keenly watching the development of Jumbo's newly established Australian Charity Lottery business. This is an example of a new vertical which diversifies the group's reliance on Tatts.

Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »